After you have successfully applied for a personal loan from a lender that you have meticulously chosen, there isn’t much you can do apart from waiting for the approval of your application.Typically, banks may take between 2 and 5 business days to complete the approval process.
What Lenders Typically Do Before Approving Your Application
- The Vetting Stage: Typically, your lender will start verifying the information submitted by you. They will see if the application is complete or not and whether anything more is required from your side. Since most applications are reviewed on a case-by-case basis, you may be asked to furnish additional documents if the bank isn’t satisfied with what you have already provided. Even if you have received an approval in-principle, representatives of the bank can get in touch with you for clarifications pertaining to information provided in some sections of the application form.
- Credit Report: While meeting the basic eligibility criteria set by your lender definitely increases chances of your loan approval, it is by no means a confirmation of the same. Meeting the minimum income criterion and providing the necessary documents to validate it helps the lender ascertain that you have a steady source of income. However, they need to dig deeper to understand your financial health. Hence, they depend on your credit report, risk score modelling, and other risk profile assessment techniques to understand whether you’re a potential defaulter or pose a greater risk than they are willing to handle.
- Quantitative Analysis: Banks also use a lot of algorithms to calculate ratios like the total debt servicing ratio or the loan-repayment-to-disposable-income ratio to quantify and analyse your ability to repay your debt on time. According to the new TDSR rules, the total percentage of a family’s debt can’t exceed 60% of its monthly income. A bank has to use all its available means to ensure that the new loan won’t deviate from this rule and increase chances of default. Banks will also use risk analysis algorithms to decide on the maximum loan limit for you. It may vary from the advertised limit, depending on your financial standing and credit history.
- Ascertaining the Value of a Collateral: If you have applied for a secured personal loan like a secured overdraft facility or some other line of credit, the bank will have to ascertain the real value of the collateral offered and see whether it matches your assessment of its value. If they aren’t happy, they might ask for more supporting documents, clarifications, or additional guarantee.
- Legal Considerations: The bank must also ensure that there are no legal hurdles that prevent them from offering you a personal loan. If you were discharged as a bankrupt in the past, for example, they have to see whether your name has been expunged from the public records or not and ensure that there aren’t legal decrees that prevent them from granting you a loan.
Confirmation of Approval
Most banks allow you to use convenient modes to stay apprised of the progress status of your application. Some of the commonly used modes are:
- Online banking
- Mobile banking
- Phone banking
Some lenders may even inform you on their own volition as soon as a stage of approval is cleared. You’ll receive confirmation once your application is approved. A date of disbursement of your loan will also be mentioned.